EastGroup Properties, Inc. (EGP) Earnings Call Transcript & Summary

Good day, and welcome to the EastGroup Properties Second Quarter 2023 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Marshall Loeb, President and CEO. Please go ahead.

Good morning, and thanks for calling in for our second quarter 2023 conference call. As always, we appreciate your interest. Brent Wood, our CFO, is also on the call. And since we'll make forward-looking statements, we ask that you listen to the following disclaimer.

Please note that our conference call today will contain financial measures such as PNOI and FFO that are non-GAAP measures as defined in Regulation G. Please refer to our most recent financial supplement and to our earnings press release, both available on the Investor page of our website and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results. Please also note that some statements during this call are forward-looking statements as defined in and within the safe harbors under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements in the earnings press release, along with our remarks, are made as of today and reflect our current views about the company's plans, intentions, expectations, strategies and prospects based on the information currently available to the company and on assumptions it has made. We undertake no duty to update such statements or remarks, whether as a result of new information, future or actual events or otherwise. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Please see our SEC filings, including our most recent annual report on Form 10-K for more detail about these risks.

Thanks, Keena. Good morning. I'll start by thanking our team for a strong first half of the year. They continue performing at a high level and capitalizing on opportunities in a fluid environment. Our second quarter results were strong and demonstrate the quality of our portfolio and the continued resiliency of the industrial market. Some of the results produced include funds from operations coming in above guidance, up 11% for the quarter and 10% year-to-date. For over 10 years now, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year, truly a long-term growth trend. Quarterly occupancy averaged 98.1%, which was consistent with second quarter of 2022, and quarter end occupancy of 98.2% is up 30 basis points from March 31. The quarterly re-leasing spreads reached a record at approximately 53% GAAP and 38% cash, with these results pushing year-to-date spreads to 51% GAAP and 35% cash. Cash same-store NOI came in up 6.4% for the quarter and 8.7% year-to-date. And finally, I'm happy to finish the quarter with FFO rising to $1.91 per share. Helping us achieve these results is thankfully having the most diversified rent roll in our sector, with our top 10 tenants falling to 8.3% of rents, down 50 basis points from second quarter of 2022 and in more locations. In summary, I'm proud of our start of the year. Statistically, it's one of the best quarters on record, all with continued recession concerns. We're responding to strengthen the market and user demand for industrial product by focusing on value creation via raising rents and new development. This market strength is what allowed us to end the quarter 98.5% leased, average over 98% occupied and continue pushing rents through a wider and wider geography. As we've stated before, our development starts are pulled by market demands within our park. Based on our read through, we're forecasting 2023 starts up $360 million. And while our developments continue leasing up, we're closely watching demand with the goal of a balanced fluid response pending what the economy allows. What's promising to see is the decrease in industrial starts primarily due to capital market volatility and credit tightening. Starts have fallen 3 consecutive quarters with second quarter 2023 being almost 50% lower than third quarter 2022. Assuming reasonably steady demand, then turning into 2024, the markets will tighten, allowing us to continue pushing rents and create earlier development opportunities. Given the capital market volatility, we've taken a measured approach towards transactions since mid '22. That said, when we find the right strategic opportunities, we pursue them. We're seeing these windows mainly on the development side and being strategically opportunistic on core investment opportunities. Brent will now speak to several topics, including assumptions within our updated 2023 guidance.

Good morning. Our second quarter results reflect the terrific execution of our team, strong overall performance of our portfolio and the continued success of our time-tested strategy. FFO per share for the quarter exceeded the upper end of our guidance range at $1.91 per share compared to $1.72 for the same quarter last year. $0.02 of second quarter FFO was attributable to an involuntary conversion gain, recognized as the result of roof replacements that were damaged in a hurricane. Excluding the gain, FFO per share was at the upper of our guidance range at $1.89 per share, an increase of 10% over the same quarter last year. The outperformance continues to be driven by stellar operating portfolio results and the success of our development program. From a capital perspective, the strengthening in our stock price continued to provide the opportunity to access the equity markets. During the quarter, we sold shares for gross proceeds of $165 million at an average price of $169.72 per share. During this period of elevated interest rates, equity proceeds remain our most attractive capital source. In our updated guidance for the year, we increased our stock issuances assumption from $180 million to $475 million, $300 million which is complete, and removed any unsecured debt assumption. As a reminder, the company does not have any variable rate debt other than the revolver facilities, and our near-term maturity schedule is light with only $50 million scheduled to mature through July 2024. Although capital markets are fluid, our balance sheet remains flexible and strong with healthy financial metrics. Our debt to total market capitalization was 18%, unadjusted debt-to-EBITDA ratio was down to 4.4x, and our interest and fixed charge coverage ratio increased to 7.8x. Looking forward, FFO guidance for the third quarter of 2023 is estimated to be in the range $1.87 to $1.93 per share and $7.58 to $7.68 for the year, an $0.08 per share increase over our prior guidance. Those midpoints represent increases of 7.3% and 9% compared to the prior year, respectively. Revised guidance produces a same-store growth midpoint of 7.3% for the year, an increase of 30 basis points from last quarter's guidance. We also increased the midpoint of our average occupancy by 10 basis points to 97.8%. This is the result of outperforming our budget expectations in the second quarter, along with continued optimism for the remainder of the year. In closing, we were pleased with our second quarter results and are well positioned entering the latter half of the year. As we have in both good and uncertain times in the past, we were allowing our financial strength, the experience of our team and the quality and location of our portfolio to lead us into the future. Now Marshall will make final comments.

Thanks, Brent. In closing, I'm proud of the results our team created. We're carrying that momentum forward. Internally, operations remain historically strong, and we're constantly working to strengthen the balance sheet. Externally, the capital markets and the overall environment remain clouded. While never fun to experience, this is leading to a marked decline in development starts. In the meantime, we're working to maintain high occupancies while pushing rents. And longer term, I remain excited for EastGroup's future. There are several long-term positive secular trends occurring within last mile, shallow bay distribution space and Sunbelt markets that will play out over years, such as population migration, evolving logistics change, onshoring, near-shoring, et cetera, which we're well positioned for. And we'll now open up the call for your questions.

[Operator Instructions] The first question comes from Craig Mailman with Citi.

Nick Joseph here with Craig. Marshall, you touched on what's happening in the overall industrial construction market in terms of new starts coming down, obviously, from recent peaks pretty materially. How are you thinking about your own new development starts and underwriting them just given current construction costs and also what you're seeing on the demand side today?

Thanks, Nick. We're -- a couple of different ways. One, we've pushed up our development yield, I guess, maybe internally our goal, although the numbers were there. So we're kind of high 6s to 7s usually on new starts. I've always liked our model and that the way it works is as we build out a park, it's usually the team in the field. And it's rather than corporate pushing out a starts goal for the year or updating that goal, it's really -- they will call and the conversations are typically were, hey, we're 99% leased in Dallas. And the last phase leased up, and we need to build a couple more buildings. And then oftentimes, even the benefit as we're talking to 2 or 3 of our own tenants in that submarket who need more space. So we'll taper that new supply into the demand. And then really if one of our projects has not leased up, we won't start that next phase. So we'll wait until the market kind of fills the inventory and then restock. So that's how we're looking at it. I think a little bit and maybe where you were going with your question, what we like about this environment and what makes it a little atypical is some of the pieces they talk about, and we would agree that demand is maybe -- the world is kind of normalizing after COVID in terms of demand. We still think it's pretty strong. It's just not frenetic like it was at one point, maybe in '21 or early '22, which felt was fun, but felt unsustainable. But what's also a really unique environment is how hard it is for merchant developers, local, regional. The people that often were building our shallow bay type products are to get capital or know what yields to build to, to then turn around and flip it, where we have the advantage where we can hold it in a growing market. So we're really seeing supply taper off. And so that's got us more encouraged about development as we look into -- really start looking into '24, assuming there's not some type of black swan economic turn. I hope that helps.

Yes, sure. Very helpful. And then just maybe on the increased cash same-store NOI guidance for the year, it implies a deceleration, obviously, in the back half of the year, but you touched on occupancy with demand you're still seeing. So can you just walk through how we get to the midpoint there, in terms of the updated guidance?

Yes, I'll jump in there, Nick. This is Brent. Yes, it really comes down to -- and we've been a little bit ahead even. We had anticipated the slower growth in same-store NOI in the second quarter. As you saw, we were down over first quarter, but raised the guide because it came in -- second quarter came in ahead of what we were projecting. But it really comes down to the slowness. It isn't really to do with rent increases, which continue to be strong, but it's more on the occupancy side. We've had the benefit from any quarters of comparing favorably to the prior year's quarter by 50, say, 130 basis points. First quarter, for example, where we had the 11% increase, we were comparing a 98.7% average occupancy to 97.4%. So we had all the rental rate growth, rent bumps plus the occupancy gain, but then you move to second quarter in our same-store compared to 98.4% to 98.4%. And so the occupancy side of that becomes flatter. And then even looking at our budget calls for a few basis points here and there pullback in occupancy and the comparison metrics for third quarter, for example, of '22 is 98.5% same-store occupancy and 98.8% for fourth quarter. And so those will be the 2 benchmarks to which we'll be comparing to. So hope we do better than what we're projecting at the moment. I mean, it's not out of the realm that our occupancy could come in ahead of what we're projecting for the end of the year. But you still got a stiff comparison. So again, we're still very pleased with the other components, rental rate growth. We've had -- we've been able to accomplish higher annual rent bumps in our leases over the last few years. The guys have done a good job of leveraging the market there. But clearly, the occupancy side comparison is a bit of headwind in the overall statistic there. But as Marshall often says, same-store is an important component, but it's just one component of many that come and formulate to our bottom line, and we've been very pleased with our bottom line FFO growth as evidenced to getting close to 9%, almost double-digit per share again. So -- we have a way of putting all our pieces together and making work to be very competitive on the bottom line.

The next question comes from Vikram Malhotra with Mizuho.

So maybe just first, you touched a little bit about not being concerned about the rent spread side or just, I guess, being more conservative on the occupancy. But as we look into the second half, you've definitely seen a broadening out in terms of the rental rate, rental growth strengthening and the rent spreads, pretty solid in parts of Texas and Florida. Can you just give us your updated view of how you see rent growth in the second half across some of your key markets? And does that essentially imply rent spreads will continue to widen out into the second half?

Good question. We're, broadly speaking, kind of viewing rent growth this year and maybe that high-single-digits to lower-double-digits, call it, 13%, 14%. And it feels like it's tracking there. Tenants are taking longer to make decisions, but we're staying full. And you're right, one of the things, when we've gotten questions about our Southern California markets, we've still said they're strong. The difference is when you look at re-leasing spreads really over the last couple of years, Southern California is still a good market for us, but so are the other markets. The delta isn't nearly what it was 3 years ago type thing. And I don't see that changing given the supply formula and the growth, just population and business growth in markets like Texas, Florida, Georgia, the Carolinas. I think that embedded rent growth is there and rents continue to grow. So we feel pretty good about our rent spreads. Look, we had the best quarter and best first half of the year we've had historically. So that -- in a period where we've been -- the most anticipated recession in history feels pretty good right now. And it feels like we'll stay there, and it's going to be interesting to see with -- we've not seen supply come down like this since probably the GFC or something like that. So really, it will be interesting to see how supply continues to come down. If demand can stay where it is, if I'm really an optimist, I could say there's more upward pressure on rents in '24 than there was in '23.

And just to clarify that last comment is more specific to your submarkets in Texas, et cetera? Are you just talking more broadly?

Like, maybe -- I was laughing, just saying my answer is maybe yes. I think supply is coming down nationally, but I certainly like having maybe the combination of ours and the markets we're in, we're in on purpose, I like that supply is coming down nationally, and I especially like it if we can double in what I thought in some of our markets, we don't need a great economy given the growth of e-commerce, population growth, job growth, onshoring, all the things like that. We just need an okay economy, and we'll gain more than our fair market share based on what we're evolving logistics chains, things like that. But if you can mix in falling supply and growing demand, it was kind of where I got to my short answer of laughing with a yes. So thank you, I like the markets we're in, I think they'll benefit a little more than the national average.

Makes sense. And then just to clarify, you referenced sort of nearshoring, onshoring a couple of times, and El Paso's rent spreads were very solid. I'm just wondering any -- can you give us any more like specific anecdotal evidence that this trend is finally building. We've been talking about it for 3, 4 years since the start of COVID. Other data points suggest there's probably more activity, but I'm just wondering, are you seeing it translate into a warehouse demand?

Mostly what we're -- you're right. We're seeing it within our re-leasing spreads and occupancy in our main 2 markets or maybe 2.5% to 3%, we're seeing rental rate growth in El Paso that's historically strong, where it's really kind of California-like markets where it's triple digits. And we won't go to the other side of the border, but in reading about -- or as in Tijuana, both have incredibly low vacancy rates and that will continue to drive those markets. So El Paso feels strong. It feels like there's -- every quarter, there's a new company, there's new demand. What we like about San Diego and a good portion of our San Diego portfolio is really a submarket Otay Mesa that's right there on the border and that continues to have strong demand. Every Fortune 1000 company transport 3PL is in that Otay Mesa area. And then the other market, we're 100% leased in Arizona. So Nogales, Mexico is not quite as big a market and a little bit further away, but we still see strong demand in Arizona. So it feels like it's not a light switch, but it incrementally builds in those markets, which feels more sustainable as well.

Makes sense. And then just lastly, if I can sneak one more in. Just your cost of capital, you referenced the equity you're raising, taking advantage of where you are. But also, I guess, relative cost of capital to public and private peers is pretty wide today. So I'm wondering, apart from sort of deleveraging, like you outlined or maybe better development spreads, is there anything else you're monitoring or looking to take advantage of that you have this relative cost of capital?

Maybe a little bit, and Brent jump in too. I think one interesting trend we're seeing on really -- part of it is cost of capital, but more importantly, access to capital and that's where we've seen opportunities in the market, and that's pushed us to the equity. I mean, maybe a lot of different reasons when you're not sure where the economy is going. I'd rather have a safer balance sheet than an unsafe balance sheet. But a lot of our peers that build what we build are local, regional developers. And we've had a number of them come to us in several markets. And hopefully, we'll -- we've closed on a couple of days, and hopefully, we'll have a few more down the road that we're evaluating, and the conversation is generally that I've had this site tied up for 2 to 3 years. It's hard to raise equity debt as more expensive would you step in and maybe we get -- we give them some promote feature or they participate on the development or some fee and really, it's shovel-ready sites that we're finding. And so that's where -- whereas a year or 2 years ago, they would have had a line of bidders when you have a site ready. You really didn't have to break ground and you could have made probably a few million dollars spending the market. Now those developers are in a tight financial spot, I think it's going to get -- make me guessing, I think it's going to get worse before it gets better, given some of the ripple effects to commercial banks and things like that is their exposure to real estate. And so that's where we're seeing the opportunities is development sites where someone else has gotten through the zoning, the permitting, all the things that usually are measured in a year or 2 of headwind before we actually close on the site, where we're having a chance to maybe jump -- cut in line basically closer to the start of the race than have to do that leg work on the front end.

[Operator Instructions] The next question comes from Nick Thillman with Baird.

This is Daniel Hogan, on Nick. So looking at your development pipeline, it looks like you pushed back some conversion dates of your projects for Springwood and Stonefield, and I know those are larger buildings and only pushed back a quarter. Is that a function of longer development times or slower lease-up assumptions?

It's really development. Yes, the lease are -- the projects are going fine. I would say, it's 2 parts. One, weather can definitely play a factor of pending where you are, and those are early enough in construction, and it's probably a little bit of weather delay. And then overall in construction and talking to our construction team, it feels like delivery times have normalized for the most part. I'll overuse the word normalized on this call, but for electrical equipment. So the transformers, the panels, all the things that people have pushed to green energy that if you said where are we having issues within our construction, and I think it's everyone, it's the lead time on electrical is about 1 year. So it could be on those to a little bit weather related and probably a little -- I know where our construction guys, their stress level is, is getting any kind of electrical equipment and delivered. I don't think it's a pricing issue so much it's just availability.

Right. And then given that you talked about seeing less shallow bay competition in the past on the supply front, have you seen any instances of mid or large box developers putting in the capital to try to break up their spaces and compete with your space? Or is it still a similar trend of...

I think it would -- look, you would probably -- they'll have financial pressure on where the market is to do that. I think the challenge -- and I guess I could maybe get on the margins, depending on the size box you built, our average tenant size is in the 30,000 square feet, 75% of our revenue comes from tenants under 100,000 feet. So if -- but if you and I have built say, an 800,000-foot building much less the million-plus, the dimensions of those buildings, it is such a deep building that if you try to cut it up for a 50,000 or 70,000 foot tenant, you end up with such a long but narrow space, you can't compete on dock doors and things like that. So our -- it becomes very inefficient space for the tenants because you don't have enough loading doors at the back of the space if you kind of picture cutting off the rectangle. And then the other thing that would happen to you on the landlord side is you have to build a fire-rated demising walls kind of from ceiling to deck. And so that gets awfully expensive. So I think the tenant improvements wouldn't work. So that's why the big boxes, they can maybe -- they don't have to go to 1 or 2 tenants, you can maybe cut it off a little bit, but probably not in small enough piece is still that it would really compete with 120,000-foot building because the tenancy when you're having those kind of deliveries and loading and unloading, it just physically wouldn't work for you.

Next question comes from Connor Mitchell with Piper Sandler.

So you guys have talked a little bit about the merchant builders and regional developers having trouble access to capital and reaching up to you, guys. So I guess I'd just like to ask about maybe what do you see in the near term and maybe a little bit longer term with whether these kind of competitors maintain and stay on the sidelines for a bit longer? Or is it possible they find capital soon to be able to jump back in the mix?

Connor. Good question, I think. And let's say it's a harder one. Good question, another way to say it's a hard one to answer. I think the pro for industrial, there's a lot of capital that still would like to be in real estate. And I think industrial is attractive compared to some offices, sounds like it's incredibly hard right now, retail, where do you go multifamily is still strong. So industrial is attractive as an alternative so you can get capital there. I still think it's hard to know, and I guess we'll not learn a little more today when the Fed finishes raising interest rates, much less lowers them to know where cap rates are because so many of these developers are merchant developers, and they've been willing to build on a pretty thin. And until you really know where capital settles out, it's hard for you, me and Brent to build it and know where we can flip the building in 12 to 18 months. And I think as we've talked to the banks that we work with, it still sounds like what regulation may come out or what pressures they're going to have to reduce their commercial real estate exposure, which isn't industrial so much, but we get thrown into that bucket with every other product type. So I think loans are going to be harder to come by in the near term than the in the last couple of months. And the interest rates sure feels like it's going to be a little bit harder. So I think those developers are going to be on the sidelines for a while. We're not seeing the forward sales or the land sales that we had. The demand was great in '20 and '21 kind of early '22, and maybe that's moderated, but supply has adjusted as dramatically, at least in our portfolio, much more dramatically than demand has to date. And you still got a lot of things in the pipeline, but as that empties out, there's not much coming back into that pipeline. And I don't see that changing for the next few quarters until the capital markets kind of settled down a little bit more.

Appreciate that. And then just a second question. Regarding the rise in the homebuilders and demand for new houses, which we haven't seen in a while, maybe even past 15 years or so before 2008. Just -- I was wondering how has the rise in the new housing demand and the homebuilders impacting the warehousing demand? Like is it showing up materially overall in the industrial market? Or can it be more attributed towards the growth in the Sunbelt and maybe some newer markets?

Yes, it's a little -- a little hard to differentiate exactly, but I think we're definitely seeing it. It's not driving our business so much as it's a positive contributor. Certainly, we're reading where Florida. The population growth Florida has had, the Carolinas, Maricopa County, Phoenix, Arizona, a huge population with Austin, Texas. So we definitely have our share of whether it's Trane Air Conditioning or Home Depot, Best Buy, Lowe's, all the tenants like that and then some of the tile companies, things like that, where we're benefiting from their growth. And they've taken a couple of our developments. I can think of a couple in Fort Myers, where it was people homebuilding related appliances, things like that where we -- it's a nice benefit, but I like that our tenancy is so diversified. To me, well, I wouldn't want to get too reliant on homebuilding because it is so cyclical. But right now, it seems to be picking up. There's a shortage of homes, it sounds like, as we read about it, and it's kind of one more tailwind that we're thankful to have.

Next question comes from Jeff Spector with Bank of America.

Great. Just big picture, Marshall, just appreciate all the comments on the different drivers of demand, and there is a lot of debate or angst over some of those drivers and I guess, where we are, let's say, in the cycle or what inning we're in per driver of demand. I guess just big picture. What are your thoughts here on the various drivers? I mean, is there still a nice balance between all of them that you would still characterize the demand for some of these drivers is still early, mid, late innings? Like how are you thinking about it?

Jeff, I like that we've got any number of drivers. I think we're still early innings and kind of picking them apart on -- it's hard to call e-commerce early innings, but I do think last mile delivery and kind of how retailers -- I think they -- as they continue to rationalize store count and things like that, I do think we're earlier innings in terms of how they door -- curbside delivery, things like that, I think there's more to go there. I think we're early innings on onshoring and near-shoring because that would strike me as a multiyear process to move a plant out of China or China Plus One manufacturing. I think it's happening, but we're early on there. And I think some of the ebb and flow like our last question on homebuilding and things like that. So I like that there's that many. And I think e-commerce is just also just the penetration, a continual drip, drip, drip versus brick-and-mortar. I don't think brick-and-mortar is going away. But I do think e-commerce every year seems to gain a little more market share just as they get better and faster and faster with their delivery. So I like that there's -- to us, we're very flexible, low-cost real estate in infill locations. Our top 10 tenants are just over 8%, our revenue is 8.3%, which is actually down 50 basis points from a year ago. So I like that there's a million ways to use our buildings. And I know you all have, I would encourage any of the investors if you're out and you want to take a tour, join an analyst tour, you really get a sense for just the variety of ways people use good industrial buildings. And every few years, it seems like green energy is a new one, we'll leave lease to a number of tenants that are doing something with green energy that we wouldn't have had any 3 years ago, and now we've got 10 or 12 tenants, and there's 1 or 2 new prospects every quarter it feels like. So I like that our pie continues to widen. And as one of these tailwinds may die down or if it reaches a late inning, it feels like there's a new tailwind that we pick up the type of tenancy we hadn't seen before, but then online pharmacies were something we didn't have several years ago, and now we've got several of those as your insurance companies push you to order recurring prescriptions online rather than, say, through Duane Reade or CVS where its brick-and-mortar. And so that's a new type tenancy. So I won't -- it'll take up this whole hour of the list of tenancies, but I like that our tenant base or prospect pool continues to grow. And then in the meantime, the full supply guys and Budweiser distributor and this and that, all those tenants are still there that we've had for 20 years.

Very helpful. And then my second question, more detailed, and I'm sorry if I missed this. Did you explain the bump in the stabilized development yields? If you didn't, if you can, please?

Okay. No, I guess it's a little bit there. I'm glad we had it. It's really where rents -- we're able to get rents. It's higher than what we had pro forma. So we -- when we do the underwriting, we'll underwrite to current market rents and the construction costs we have in hand. And a lot of times, as we lease those buildings, couple of things that can help us get better yields will be, one, mainly getting rents that were a little bit higher than the market was at the time when we kind of said, okay, let's break ground and go. And then the other thing we can usually pick up on to, would be getting the building leased up faster. So our carry is a little bit less. So a combination of those, but the bigger driver would just be the market continues to rise. And so I'm glad that the buildings that we had under lease-up picked up, and I'm hopeful by the time they move out that what we've got under construction can maybe pick up a few basis points between now and then. And if it gets leased up quickly or a single tenant takes it and we can get better rents, we'll keep trending higher. And look, if we can raise capital at the right way and again as Brent mentioned earlier, we think things like same-store NOI and all those are very important, but our successful development program has been a huge driver to our FFO growth and our NAV creation. So it's great to see those yields coming up.

The next question comes from Samir Khanal with Evercore.

Marshall, on the one hand, you talk about market strength, operations being strong and then you talk about demand drivers still intact. But then when I look at your development starts, it's up modestly, right? So I'm just trying to understand like what's holding you back from pushing that number higher? I guess what are the guideposts you're looking at to kind of get -- be a little bit aggressive on that?

Ours is really -- we feel like for us, over the years, $360 million is a pretty good start rate for us. I'm we're happy with that. And I don't -- really holding us up 2 things we'll look at if this is helpful, we have our starts that we've dialed out for the year, which is that $360 million and then when we look at the pages internally, we'll call it a shadow pipeline of if we get lucky, here's the next batch of the next phase and a part typically, here's what could happen. And really, the $360 million, we feel pretty good and solid about it, they're going to happen this year, and we've raised it a couple of times this year. I hope the market demand is there. And we'll go -- I've always tried to take an approach to it for our investors, we'll go as high or as low as the market tells us to. I'm glad we're 98.5% leased and the demand is there. But if phase 3 and a part doesn't lease up, I would act like I think it's the right decision. I'd be comfortable going from $360 million to $380 million or much below that, if we're not leasing up what we built. But hopefully, if that $360 million number rises, it's really the team in the field finding tenants for our current development and will -- our task at corporates really to help them get the capital -- to capitalize on those opportunities. So we'll go as fast or as slow as the market demands and really through, call it, late July, we're forecasting $360 million. But look, if it becomes $400 million, then great, that means we're leasing up our buildings and the markets pulling the next phase of the park faster and faster. And that's really what's happened in the last couple of years, and we'll see how this year plays out.

Got it. And then I guess my second question is around your guidance. And I know this was asked earlier about sort of NOI growth implying that there's going to be a bit of a slowdown in the second half. I know -- look, you're coming off at a very high level, so I understand that. But maybe talk about some of the markets that are driving that, right? I mean, L.A., we certainly know that's been -- we've talked about that a lot. But maybe talk about your other markets, which is sort of driving that slower growth in the second half?

I'm just kind of looking at where we are for the year. It's typically -- and I get it, the market that pulls you down this year is the good market next year. And it's mainly more a function -- I mean at Fort Worth, we had to move out. It's not a big. It's 1 million square feet. There's nothing wrong with the Fort Worth market, but the same-store NOI will be less. It's more -- some of those markets you're coming off 99%, 100% leased and then we get a vacancy. San Francisco is a market where we've got a little bit of vacancy there. As I think about that, it's not in our same-store NOI, but that will -- it's one of the properties we acquired last year. We're backfilling a space where a tenant moved out. So it should be a nice pickup next year. So it's probably more a function, not in terms of market weakness that we're seeing that are above and below the average, so much as where is their vacancy rolling in and out of any market. I mean I think maybe if it's more helpful when I look at our core market stats, I've always thought kind of the year-to-date, kind of GAAP rent growth and cash same-store NOI I look and when I see Phoenix, Las Vegas, El Paso, Dallas, GAAP rent growth, all much closer to what we used to achieve only in California for our portfolio. It's great to see those widening. And then the same-store NOI in any given year, maybe we're just not quite as big as some of our peers or one of our peers, in particular, that a move out here or there can make our same-store negative in 1 year and very positive the next.